Virtual Carbon Taxes

Some years ago, the trend in the electric power industry was “virtual deregulation.” Northwest power companies, both public and private, expected to soon be plunged into a fiercely competitive, dog-eat-dog world. So they acted accordingly. They slashed parts of their budgets-such as encouraging conservation among their customers-that didn’t obviously bring them new revenue in the short term. The result was a slowdown in the Northwest’s progress on energy efficiency, even though the deregulation they expected never came.

Today, anticipation is influencing the power sector in a better way. The Northwest Power Planning Council’s draft regional electricity plan embraces new coal plants less enthusiastically than it otherwise would because the council’s spreadsheets on the long-term costs of different options factor in a probability of national or state carbon taxes or other policies that will raise the price of coal relative to other energy sources. (On this, read us, the Council, and yesterday’s Missoulian.) Thus, though there are no carbon taxes yet in North America, their rising prominence in public discussion here plus the global trend toward them (see Green Budget News from Germany for recent examples) is pushing coal to a somewhat smaller role in the Northwest’s energy future. In other words, the Northwest is already benefiting from a virtual carbon tax.

The lesson here is that, in some cases, changing what decisionmakers expect to happen is as important as changing what they value.

P.S. A similar example comes from gold mining. Gold mining has egregious environmental consequences, and much gold is mined simply to be squirreled away as an investment. In the mid-1990s, some campaigners worked to spread news about speculation among currency insiders that the US and other OECD governments might sell onto the world market some of their gold supply. The effect on the commodity markets would be to lower the price of the metal, in anticipation of an increased supply. The lower price would, in turn, reduce the profitability of new mines, possibly tipping the balance on some marginal ones.

P.P.S. The council is holding public hearings on its draft five-year power plan in various Northwest cities. It’s a chance to weigh in on one of Cascadia’s most important and least discussed public policies. The schedule is here.

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